Futures Slide Back Under 2,950 After Trump Slams Xi In Angry Tweetstorm

And just like that, spoos are back under the critical 2,950 resistance level.

Just when it seemed that Emini futures were about to break out from the narrow channel they had been boxed in for the past month, and where the 2,950 level was suddenly breached after repeated failed attempts…

… Trump decided to drop some late night tweets, escalating what had been an already tense day for US-China relations, and accusing China’s Xi Jinping of being behind a “disinformation and propaganda attack on the United States and Europe” and that China could have “easily stopped the plague but they didn’t”

“It all comes from the top,” Trump said accusing China’s president Xi in a trio of tweets on Wednesday night, in which he claimed that China was “desperate” to have Joe Biden win the presidential race (he is probably right on that).

….It all comes from the top. They could have easily stopped the plague, but they didn’t!

— Donald J. Trump (@realDonaldTrump) May 21, 2020

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China is on a massive disinformation campaign because they are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!

— Donald J. Trump (@realDonaldTrump) May 21, 2020

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What was new about Trump’s Wednesday night tweets, and why the market reacted like it did, is because While Trump has often blamed China for causing the coronavirus pandemic, he was careful to maintain that his relationship with Xi remains strong and never reference the Chinese president in one of his rants. Now that Xi has been dragged into the feud, the Chinese president needs to responds, or else risk looking weak before his country, and it is Xi’s response that markets are now dreading.

Trump’s tweet came hours after the Senate passed a bill to clamp down on Chinese companies listed in the US, and shortly after the White House issued a broad critique of China’s economic and military policies in a report to Congress, in which it accused Beijing of intellectual property theft and economic protectionism, however without detailing what specific actions the U.S. will take in response. The report also faulted China for human rights abuses, including detaining ethnic and religious minorities such as the Uighurs, and for “engaging in provocative and coercive” military activities in areas including the South China Sea and the Taiwan Strait.

The administration also said that the decades-long policy toward China – based on the presumption that deepening engagement would help the country become a more economically and politically open society – was wrong.

China “has chosen instead to exploit the free and open rules-based order and attempt to reshape the international system in its favor,” the report said. And China’s “expanding use of economic, political, and military power to compel acquiescence from nation states harms vital American interests and undermines the sovereignty and dignity of countries and individuals around the world.”

In a reverse tit-for-tat, China’s foreign ministry earlier also fired back with similar charges, saying the Trump administration was looking to obscure the facts around the virus to deflect from its own shortcomings.

Earlier on Wednesday, China’s foreign ministry spokesman Zhao Lijian said that Pompeo’s congratulations to Taiwan’s Tsai Ing-wen, in which he called her “Taiwan’s president” and boasted about the “partnership” between the US and Taiwan, are in “serious violation” of the “one-China” principle and the three China-US joint communiques which make up the Phase 1 trade deal between the two nations, and “constitute grave interference in China’s internal affairs.”

“China deplores and condemns US interference and will take necessary measures in response to the US erroneous practices”, and the “consequences will be borne by the US side” Zhao warned.

Shortly after, China’s Global Times tweeted that it urges the US, among other things, to sstop interfering in China’s internal affairs, and to stop undermining peace and stability across the Taiwan Strait, as well as China-US bilateral relations.

And so on, and on, and on, until eventually the next escalation will be one from which there is no quick and easy de-escalation.

Perhaps in anticipation of that, following today’s sharp jump in stocks, risk ticked lower and after plunging on Wednesday, the dollar rose against its G-10 peers with AUD and NZD underperforming most in G10 on haven demand as U.S.-China tensions take center stage ahead of China’s National People’s Congress starting Friday. The Bloomberg Dollar Spot Index advanced 0.3%, its first rise in four days and as markets “suddenly” realize just how deep the conflict between the US and China has become.

The Australian dollar – often a proxy for US-China sentiment- led declines against the greenback among G-10 currencies after surging to the highest in more than two months on Wednesday. The offshore yuan also weakened after two days of gains and following a weaker than expected fixing by the PBOC earlier in the session.